International Finance Corporation (IFC) will invest $35 million (over Rs 250 crore) in non-banking financial company Manappuram Finance.
“However, the current market size of formal gold loans is a mere $19.6 billion, which leaves the field open to pawn-brokers and usurious money lenders in rural areas. The government of India encourages formal financial institutions to enter the market not only to bring large stocks of idle gold into the mainstream for productive use, but also to stem the rising indebtedness and exploitation,” the statement added.
Actually, gold loan companies offer loans to customers, small business by converting their gold into money without any recorded proof of income.
Furthermore, IFC is a sister organisation of the World Bank and it is the maiden investment into any gold-loan non banking finance company.
“IFC is making its first investment in a gold-loan finance company to create opportunities for the rural and poor households to transition from informal to formal credit,” said Jun Zhang, IFC Country Head for India.
IFC may also provide advisory services to bring global best practices to MFL’s risk management systems and help it build capacity in MSME (micro, small, medium enterprises) lending, Zhang added.
According to the World Gold Council, India has 23,000 tons of gold with an estimated market value of $1 trillion. However, the current market size of formal gold loans is a mere $19.6 billion, which leaves the field open to pawn-brokers and usurious money lenders in rural areas, reads a statement by MFL.
The Government of India encourages formal financial institutions to enter the market not only to bring large stocks of idle gold into the mainstream for productive use, but also to stem the rising indebtedness and exploitation.